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Currently G98 GeForce 8400 GS is the only non-integrated graphics card that contains VP3.

G98 8400 GS is also manufactured with a 65 nm process.

I am sure later revisions of the 9xxx series will have VP3. Would an 8400GS be usable for playing games? Also why not use the low end X2 CPU's as some of them also are low wattage and I am sure the performance will be even better still without the excess heat

Though if these were encrypted video files and using say a Blu-Ray disc, this likely wouldn't be possible since the processor would have a very hard time keeping up, but anyways Linux is currently lacking such a player.

Yes, real-time AACS decrypting (and BD+ de-corrupting) will cause some additional load. But this doesn't need to be too high load for modern CPUs (especially with optimized implementation).

Yes, currently open-source world lacks fully integrated player.

But in practice these are no obstacles at all:
Several open-source tools exist to decrypt AACS.
For the minority of Blue-Ray releases having BD+ there is libbluray.
There are also modified firmwares for some popular drives to access the full media without key exchange.

Much of the relevant information and the history of hacking can be found at forum.doom9.org / Decrypting.

The file-system is UDF2.5 and supported with kernel-2.6.26+
Video files are *.TS. These are standard MPEG transport steam and readily playable with mplayer etc.
(There is also recent support of those various HD audio codecs now.)

So there isn't much stopping from watching Blue-Ray (or HD-DVD) on linux.
(And these will work also with this low-end setup, because all decrypting is made before playback.)

I bet there already is automated script to do this all with single click ...

Yes, real-time AACS decrypting (and BD+ de-corrupting) will cause some additional load. But this doesn't need to be too high load for modern CPUs (especially with optimized implementation).

Yes, currently open-source world lacks fully integrated player.

But in practice these are no obstacles at all:
Several open-source tools exist to decrypt AACS.
For the minority of Blue-Ray releases having BD+ there is libbluray.
There are also modified firmwares for some popular drives to access the full media without key exchange.

Much of the relevant information and the history of hacking can be found at forum.doom9.org / Decrypting.

The file-system is UDF2.5 and supported with kernel-2.6.26+
Video files are *.TS. These are standard MPEG transport steam and readily playable with mplayer etc.
(There is also recent support of those various HD audio codecs now.)

So there isn't much stopping from watching Blue-Ray (or HD-DVD) on linux.
(And these will work also with this low-end setup, because all decrypting is made before playback.)

I bet there already is automated script to do this all with single click ...

and only a matter of time before this is all supported directly by mplayer and friends

Application on the encode side of this GPU?

Are there applications of either the tested hardware set or the tested software suite (VDPAU + FFMPEG & others) to H.264 encode in any way, or is this application set limited strictly to playback optimization?

I would imagine that a number of the GPU primitives in the chip would allow to address both worlds to some extent, but I do not know if the VDPAU wouldbe effective glue. FFMPEG surely can do some tricks with H.264 encode, but I do not have any idea what if anything it can do a nice powerful low GPU like this one withou that right glue...